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Garage Framing Question

1. I'd go with a floor to ceiling 2x4 wall. No sigificant cost difference and no question of strength. You want the 3.5" space for insulation anyway.
2. Leave it empty or have you considered setting the upper wall back to the current studs and building in bookshelves and flat screen TV niche so that the outer face of the shelves is even with the lower wall. Then you only need new wall framing for the bottom couple feet in front of the block.

Oh BTW, don't forget to insulate the perimeter under the subfloor. Otherwise you'll have a cold floor.

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Garage Framing Question

Where does the 7"come into the picture? is the existing foundation 12" thick? WE have in the past installed 1x2 furring over the foundation then cut and installed ridged foam insulation between the furring then installed vapor barrier then drywall. cap the top with 1x and continue up from there. This was done to gain as much room As possible. I hope I understood your question and have given you another option. BOB

Garage Framing Question

...Any idea of what interesting thing I can do with a 4" ledge? Jogr mentioned a bookshelf or TV niche, but this ledge will exist all the way around 3 sides of the garage.

Thanks

Generally, the best method for utilizing and incorporating the frost-wall ledge is to install a wood shelf along the top of it. You could install it where the literal top of the concrete wall is, or frame the it higher, so suite your taste.